Time is running out for investors to reclaim up to SFr15bn ($15.4bn) in investment fund commissions that was pocketed by Swiss banks.
Swiss lenders historically received lucrative commissions from asset managers, whose products they pushed to their wealth management clients.
These rebates, which were as high as 2 per cent of assets in some cases, generated SFr4.2bn for banks in 2012, equivalent to 12.4 per cent of the sector’s profits, according to analysis by consultancy Finalix of data provided by the Swiss Bankers Association.
The practice came to an end in 2012 when Switzerland’s highest court banned banks from retaining commissions.
The ruling was significant for Switzerland’s largest banks, including UBS, Credit Suisse and Julius Baer, as it applied to commissions paid by a lender’s in-house asset management unit to its wealth division.
The Federal Supreme Court ruled that such commissions belong to the end investor and can be claimed back, yet few claims have been submitted and investors are running out of time, according to litigation experts.
Ten year limitation
Nicolas Ollivier, counsel at law firm Lalive, which specialises in banking litigation, said: “After the ruling of 2012, the financial industry expected a wave of requests from clients claiming back retrocessions [but] few clients asked for reimbursement.”
He added that claims tended to be made only when mismanagement disputes arose between investors and their banks. “There are still huge amounts unclaimed,” he said.
Investors can submit claims for up to 10 years after the commissions were paid, meaning that wealthy clients who entrusted their money to Swiss wealth managers in 2009 will lose the ability to claw back what is owed to them at the end of this year.
Hubert Schwärzler, chief executive of Liti-Link, a claims management specialist, estimated that the amount of unclaimed retrocessions could be as high as SFr15bn for the three-and-a-half years still within the 10-year limitation period, assuming that Swiss banks earned about SFr4.2bn annually at that time.
According to Mr Schwärzler, clients who invested large sums with Swiss banks could recover six-digit sums, given that they are entitled to 5 per cent interest a year. “The problem is that hardly any investors know about the possibility of recovering retrocessions,” he said. “Due to [the limitation period], large sums expire daily in favour of the banks.”
Claiming back commissions retained by banks was more complicated until recently, as different Swiss courts were divided on the duration of the limitation period and whether investors should be entitled to interest payments. Mr Schwärzler said this allowed some banks to dismiss claims by saying the limitation period had already expired and to refuse to pay interest.
However, a separate federal court ruling in 2017 clarified these issues, paving the way for more claims to be made.
Mr Schwärzler said international investors were beginning to show more interest in claiming back commissions owed to them. Back in 2012, they did not act as they were focused on repatriating assets held in Swiss bank accounts following an international tax evasion crackdown. “They [are realising] they were ripped off in Switzerland and now they want their money back,” said Mr Schwärzler.
German and Italian investors are waking up to the issue, he said, but UK investors — which account for 27 per cent of assets in Swiss bank accounts, according to the Swiss National Bank — have been slow to act.
The issue has wider implications for wealth managers. A legal ruling last year means that banks that do not inform clients of retrocessions that they received may be guilty of criminal mismanagement.
Switzerland’s move to ban commissions coincided with rebate bans introduced by the UK and the Netherlands. Mifid II, which came into force last year, banned discretionary wealth managers and independent advisers from accepting commissions, although restricted advisers can still receive them.
Mr Schwärzler said the Swiss case could have implications for other European countries. Liti-Link is seeking to help German investors push for a court ruling similar to the Swiss one that would force banks and wealth managers to retrospectively pay rebates to customers.
Additional reporting by Richard Waters and Hannah Murphy in San Francisco, Rob Armstrong in New York and Kiran Stacey in Washington
Copyright The Financial Times Limited 2019
The Financial Times